June gave the stock market some time to breathe after a monster first-quarter earnings season came to a close. Investor attention turned to inflation, employment, and the Federal Reserve.

While July looks poised to start the same way, it will differ in a few key ways. As we enter the second half of the year, we'll be armed with more information from the Fed. We'll also have another quarter of corporate earnings and guidance to help us understand what the rest of the year will look like in the stock market.

The market still wants bad economic news

Investors are watching economic indicators very carefully, and a few important ones will be published in the first two weeks of July. Oddly, the stock market will probably react to these data points the exact opposite way from what you'd expect.

Major stock indexes retreated a bit last month following a Federal Reserve meeting. Commentary from the Fed made it clear that interest-rate hikes would likely come sooner than later. Unemployment is falling faster than economists had expected, while inflation is growing into a more prominent risk that the central bank has to manage.

A person standing on a cliff uses a telescope to look out toward a horizon full of mountain ranges.

Image source: Getty Images.

If the new economic data suggests higher-than-expected growth or inflation, then we should experience a turbulent stock market. Capital will flow away from equities if interest rates are more likely to rise. Investors were a bit rattled last month, and new data points validating those concerns won't go unnoticed.

ISM manufacturing data comes out on July 1, followed by the Bureau of Labor Statistics monthly employment report on July 2. The Consumer Price Index will be published on July 13. On July 16 we'll see valuable metrics on consumer sentiment and retail sales. Economists are expecting approximately 4.3% inflation. Several million jobs are forecast to be added this summer, as unemployment benefits expire and summer travel boosts economic activity.

If employment doesn't meet those aggressive expectations, don't be shocked if the market jumps upward in the short term. I'd recommend maintaining a balanced portfolio that's designed to maximize long-term returns. Don't try to make big bets amid the uncertain conditions clouding the next few quarters.

More tough sledding ahead for airlines and hotels

Travel restrictions reemerged last month in parts of Europe, Asia, and Australia, due to the spread of the Delta coronavirus variant. That took a toll on travel and hospitality stocks that have international exposure.

A caveat here: We don't really know how the next phase of the pandemic might play out. Vaccinations, widespread immunity, and government responses might make the Delta variant a relative non-issue, at least in comparison to the 2020 crisis. However, the scenes from India in recent months have really influenced regulators. Even if this emerging threat blows over quickly and travel restrictions are relaxed, some damage will be inflicted in the first few weeks of the month. It might be tough for those stocks to recover so quickly.

Value investors might be looking to pounce on airline stocks, cruise lines, and hotel chains after those industries took a beating in June; the recent dip might wind up being a great entry point. But don't be shocked if things get worse before they get better: There's still plenty of room to move backward.

We'll kick off earnings season with a mixed bag

The first quarter was one of the S&P 500's all-time greatest. Revenue and profits smashed analyst estimates for the majority of stocks, as sales grew at the highest rate in more than a decade. This was driven by fundamental economic strength, but also had support from stimulus checks and low interest rates.

Things will be different in Q2, but the overall picture should still be positive. Stimulus checks shouldn't play such a large role this quarter, and employment figures have also been weaker. Retailers won't enjoy the same tailwinds as a result. Lower volatility in capital markets will also drag on earnings for major banks, which enjoyed excellent revenue from trading and asset management in the choppy markets of Q1. Still, most signs point to corporate earnings that display recovery and financial health in the S&P 500.

Big banks such as Goldman Sachs (GS -0.32%), JPMorgan Chase (JPM 0.85%), Bank of America (BAC 1.36%), Wells Fargo (WFC 0.82%), and Citigroup (C 1.02%) will provide insights on overall economic activity and their outlook. They'll be followed by the tech giants, such as FAANG stocks, Tesla (TSLA 3.23%), and Microsoft (MSFT 1.19%), which can update investors on consumer activity and tech growth.

Will Q2 results be enough to satisfy analyst forecasts that were revised upwards following the first quarter? That would be tough. They'll be competing with loftier expectations, especially as we annualize the reopening activity that occurred last year in June. Remember, last quarter included a meaningful boost from the stimulus.

If S&P 500 stocks slump after they report Q2 earnings, try to read beyond the headlines. That might not signal anything wrong with their long-term performance, and a post-earnings dip could be a great time to scoop up these stocks at a discount.

Any outlook provided by the management teams of companies that report early will be very informative, and could cause some market movement. Make sure your portfolio is ready to absorb volatility to both the upside and downside.